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11 Ways Companies Confuse You

You walk into a Starbucks and see two deals for a cup of coffee. The first deal offers 33% extra coffee. The second takes 33% off the regular price. What’s the better deal?

If you think they’re about equal you’d be wrong. A 33% discount is the same as a 50% increase in quantity. Getting something extra “for free” feels better than getting the same for less.

The applications of this simple fact are huge. Selling cereal? Don’t talk up the discount. Talk how much bigger the box is! Selling a car? Skip the MPG conversion. Talk about all the extra miles.

Maybe that explains why the average package size (as well as portion size) has seemingly done nothing but increase in the past 50 years. These tricks work for two main reasons. First: we don’t really know what anything should cost so we rely on other cues to hep us. Second, “although humans spend in numbered dollars, we make decisions based on clues and half-thinking that amount to innumeracy.”

Here are 10 more ways consumers are bad at math, with an assist from historian and author of Priceless William Poundstone.

(2) We’re heavily influenced by the first number. You walk into a high-end store, let’s say it’s Hermès, and you see a $7,000 bag. “Haha, that’s so stupid!” you tell your friend. “Seven grand for a bag!” Then you spot an awesome watch for $367. Compared to a Timex, that’s wildly over-expensive. But compared to the $7,000 price tag you just put to memory, it’s a steal. In this way, stores can massage or “anchor” your expectations for spending.

(3) We’re terrified of extremes. We don’t like feeling cheap, and we don’t like feeling duped. Since we’re not sure what things are worth, we shy away from prices that appear too high or too low. Stores can employ our bias for moderation against us. …

(4) We’re in love with stories. In his book Priceless, William Poundstone explains what happened when Williams-Sonoma added a $429 breadmaker next to their $279 model: Sales of the cheaper model doubled even though practically nobody bought the $429 machine. Lesson: If you can’t sell a product, try putting something nearly identical, but twice as expensive, next to it. …

(5) We do what we’re told. Behavioral economists love experimenting in schools, where they’ve found that shining a light on fruit and placing a salad bar in the way of the candy makes kids eat more fruit and salad. But adults are equally susceptible to these simple games. Savvy restaurants, for example, design their menus to draw our eyes to the most profitable items by things as simple as pictures and boxes. Good rule of thumb: If you see a course on the menu that’s highlighted, boxed, illustrated, or paired with a really expensive item, it’s probably a high-margin product that the restaurant hopes you’ll see and consider.

(6) We let our emotions get the best of us. In a brilliant experiment from Poundstone’s book, volunteers are offered a certain number of dollars out of $10. Offers seen as “unfair” ($1, let’s say) activated the insula cortex, “which is otherwise triggered by pain and foul odors.” When we feel like we’re being ripped off, we literally feel disgusted — even when it’s a good deal. Poundstone equates this to the minibar experience. It’s late, you’re hungry, there’s a Snickers right there, but you’re so turned off by the price, that you starve yourself to avoid the feeling of being ripped off. The flip-side is that bargains literally make us feel good about ourselves. Even the most useless junk in the world is appealing if the price feels like a steal.

(7) We’re easily made dumber by alcohol

(8) We’re pained by transaction costs… In a personal finance column, Megan McArdle implored her readers to give up recurring payments like gym memberships and subscriptions to papers and services they don’t use. “Don’t buy stuff you don’t consume” seems like obvious enough advice, but Megan had a great point. We’re drawn to subscriptions and memberships and bundles partially because we seek to avoid transaction costs. We’d rather overpay a little than suffer the psychological pain of pulling out a wallet and watching our money go to each gym season/movie/etc.

(9) … but we’re weird about rebates and warranties. Now that I’ve just told you that consumers try to avoid additional payments, I should add that there are two additional payments we love: rebates and warranties. The first buys the illusion of wealth (“I’m being paid money to spend money!”). The second buys peace of mind (“Now I can own this thing forever without worrying about it!”). Both are basically tricks. …

(10) We’re obsessed with the number 9. Up to 65 percent of all retail prices end in the number 9. Why? Everybody knows that $20 and $19.99 are the same thing. But the number 9 tells us something simple: This thing is discounted. …

(11) We’re compelled by a strong sense of fairness. I’ve already explained how our brains light up differently based on seeing a bargain vs. a rip-off. The shopper’s brain is motivated by a sense of fairness. …

“As a result, the shopping brain uses only what is knowable: visual clues, triggered emotions, comparisons, ratios, and a sense of bargain vs. rip-off. We’re not stupid. Just susceptible.”

Still curious? Buy Poundstone’s book: Priceless.

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